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The road forward for Responsible Investors – After Trump’s triumph

The election of Donald Trump for president of the United States has led to mixed reactions in the responsible investment community. Prior to the elections, his candidacy was regarded ‘a worst nightmare’ by financial analysts. It was feared that the unilateral termination of trade treaties with the US would plunge the world economy into chaos. As finger on the pulse of the times, financial markets faced losses in the period before the elections. But once elected, the markets recovered quickly and interest rates increased, having at least a temporarily beneficial effect on the funding ratio of many pension funds, including Dutch pension funds, pension funds in Japan and in the UK. The markets may be up, but the road forward for the responsible investment community will likely be viewed through the lenses of how well it copes with the Trump’s policies on key investment areas such as renewables.

Renewables are key investment areas that will likely be impacted by the Trump administration. Investors are increasingly aware that continued investments in fossil fuels on the long term will jeopardize their business interests. Despite this, more is needed to push the global energy transition forward, for example, urging investors to set measurable reduction targets with regard to the GHG emissions of their investment portfolios, to divest from fossil fuels and to invest more in renewable energy projects.

But how likely is it that President Trump will undermine the transition of an economy that is primarily based on fossil fuels to a renewables-based economy? How would (responsible) investors react to Trump on this? What would be their economic drivers?

With his preference for installing climate skeptics in the White House, his intention to support the production of shale gas and shale oil, and his promise to provide jobs for mine workers in the Appalachians by the (re)opening of coal mines, Trump could undermine the successful efforts of former President Obama that gave the United States a serious position at the negotiating table in COP21, which led to the ratification of the climate agreement. Shortly after the US elections, a group of investors gathered in Colorado for an annual conference on responsible investment. Laura Nishikawa, head of fixed income environmental, social and governance research (ESG) at MSCI, speaking at the conference on the outcome of the US elections said: “We all had a group cry. Policy is really important in terms of speeding things up or slowing things down. Trump could really slow things down.”

Investment analysts indicate that even without incentives or subsidies, renewables are becoming less expensive and more efficient, therefore reaching a cost level competitive with fossil fuels. However, a recent publication in the Financial Times reveals that the share prices of companies focused on renewable energy are already being affected negatively and coal mining companies, by contrast, are benefiting from the looming policies of the new administration. For insurance companies, climate change is not something anyone can choose to believe in or not. It is a fact they are already dealing with irrespective of Trump’s belief, because as global losses from natural disasters continue to rise, insurance companies worldwide experience growing claims from policy holders for damages caused by the effects of climate change. Peter Höppe, head of Munich Re's geo risks research unit, warned that “climate change will increase the likelihood the world will suffer devastating events like those seen in 2016 on an increasingly frequent basis”.

NGOs that have played a vital role in raising awareness on climate change and advocating for more investments in renewable energy projects, are horrified by the idea of Trump being in power but will definitely continue the fight to sustain the momentum towards a clean energy revolution. Greenpeace International Directors Jennifer Morgan and Bunny McDiarmid maintain that averting climate catastrophe may be harder under Trump, but still not impossible.

As President Trump assumes office and proceeds with his economic agenda, it is unclear if the markets will experience continued growth or become volatile, but it is almost certain that within his first 100 days in office, his energy policy will test the strategies and resilience of the responsible investment community.

For more information and research opportunities on this topic, please contact Margreet Simons, m.simons@profundo.nl.